Can You Make Money with Automated Trading?

As of a January 2022 CNN prediction, automated robo-traders will soon manage close to $1 trillion dollars of the public’s wealth. Despite this growth in the market, a recent publication provided by The Robo Report recording the returns of over 50 robo-investors over a three-year period ending June 2022 found that average returns ranged between 2.9% and 6.5%, representing about the average returns found in a well-managed traditional portfolio and, in some cases, underperforming when compared against popular index funds. As a result, many concerned investors are beginning to wonder:

Can you make money with automated trading?

While entry-level robo-advisors may often find their returns limited due to a variety of factors, automated trading, in general, can offer investors significant gains over traditional approaches when combined with the right strategy and platform.

This article discusses both, showing how automated trading not only generates profits but can accommodate varying types of investors for long-term growth.

Selecting an Investment Strategy

Investors wondering, “Can you make money with automated trading,” should start by understanding what types of strategies make this possible, along with how some of these basic strategies work.

In the table below, we have outlined some basic strategies an investor interested in automated trading might consider, along with how the strategy works and how much risk is associated with it in the market.

Basic Automated Trading Strategies

Strategy How the Strategy Works

Risk/

Reward

LongInvesting your own money in a stock that you believe will gap up in value.

Low/

Moderate

ShortSelling borrowed shares with the intent of repurchasing them after they gap down in value, keeping the difference. 

High/

High

ArbitrageQuickly buying and selling the same asset in different markets, profiting from a minute difference in profit. 

Low/

Low

FuturesSigning a contract promising to buy/sell a stock at a specific price and time for a certain price in the future.

High/

High

OptionsSigning a contract that awards the option to buy/sell a stock if the stock’s value hits a specific price within a defined time period. 

Moderate/

High

It is important to note that inside of these basic strategies, it is possible for an investor to take on more or less risk. For example, someone wishing to take on a bit more risk for reward may choose to take a long strategy on a leveraged ETF as opposed to individual shares, which bears significantly more risk in exchange for greater returns.

Understanding Risk

When getting started in investing, figuring out your risk tolerance is an important aspect when choosing an investment strategy. Risk refers to the likelihood that an investment will behave unexpectedly, affecting overall returns and incurring losses. Every investor’s respective risk profile varies depending on factors such as:

    • Time Horizon: Depending on how long the investor plans to leave an investment growing before removing it from the market. For example, a young investor with a longer time horizon theoretically has a higher risk tolerance since they have longer to make up their losses.
    • Expected Returns: While most automated traders typically at least match market returns, those wishing to exceed them often need to take on a higher degree of risk. This is especially true when considering leveraged investments (investing using borrowed money), which magnify both gains and losses on trades.
    • Lifestyle: Normal expenses for an investor deeply affect how much they will have available to contribute to investments. A school teacher working on a limited budget with several children, for example, may have significantly more to lose than a high net-worth individual who is single.

Low-risk investments include bonds, treasury notes, and certificates of deposit (CDs), all backed by the United States government. However, a broader bit of advice for loss mitigation is to find ways to diversify investment portfolios as much as possible. Doing so ensures that losses incurred in one sector only affect parts of your investments rather than the whole thing. This means a long process of many investments into various asset classes beyond the stock market, like real estate, commodities, or gold.

Platform

In addition to selecting an investment strategy that suits their preferred level of risk, investors also need to choose an investment platform capable of executing that strategy. Investment platforms come in several variations, but generally, they can be defined as the medium by which investors execute trades. 

Often, investment platforms are distinguished by a few criteria:

    • Capability: What strategies can they implement? What asset classes can they work with? 
    • Accessibility: How user-friendly is it? Does the platform provide resources for investors to use/develop their investing knowledge? 
    • Expenses: How much does it cost to use? What does its fee structure look like? 

Using these criteria as a basis, the table below examines the most common categories of investment platforms.

Different Investment Platforms to Suit Your Individual Needs

Platform DescriptionCapabilityAccessibilityExpenses
Brokerage FirmsA market intermediary which exclusively executes trades on behalf of clients. LowLowLow
Robo-AdvisorAn automated online platform utilizing artificial investing (AI) investing for clients. LowHighLow
Hybrid PlatformsAn investing platform offering both automated and traditional trading for investors.HighLowMedium
Mutual FundsPooled funds investments in diversified holdings for investors to create longer-term growth.MediumHighMedium
Hedge FundsA pooled fund using investor money to engage in high-risk strategies. HighLowHigh

All of these options cater to a specific investor type. The most important thing is deciding what type of investor you are and what features matter to you most.

Can YOU Make Money With Automated Trading?

It is difficult enough to understand how platforms and strategies operate in theory, but attempting to apply them to an individual situation is especially challenging. The table below attempts to do just this, offering platform and strategy suggestions for several common investor types, depending on whether they are seeking low, moderate, or high returns.

A Platform and Strategy to Suit Every Investor

Investor TypeLow risk/low rewardModerate risk/moderate rewardHigh risk/high reward
Recent Retiree

Hybrid/Robo-Advisor

Treasury  Notes, Bonds

Hybrid/Brokerage Firm

Short term corporate bonds

Hybrid/Mutual Fund

Short, options. 

Young Professional

Robo-Advisor

Bonds, Fixed annuity

Hybrid/Brokerage Firm

Long, Arbitrage, Blue Chip Stocks

Hybrid/Brokerage Firm

Short, Options

College Grad

Robo-Advisor

Bonds, Money Market Mutual Funds, 

Hybrid/Robo-Advisor

Long, ETFs, 

Hybrid/Robo-Advisor

Short, Leveraged ETFs

High Net-Worth Individual

Mutual Fund

Series 1 savings bonds, Fixed Annuity

Mutual Fund/Hybrid

Long, Arbitrage, Equity Mutual Funds, 

Hybrid/Quantitative Hedge Fund

Short, Options, Futures

While the table above can serve as a good primer for interested parties, the truth is that investors should really consider consulting with an experienced financial advisor to get a more in-depth breakdown of their needs and the best solutions. We’ve written at length here at RIMAR about the fallacy of robo-advisors attempting to tailor investment strategies to their clients using clumsy surveys that frankly don’t get into the nuances of an individual’s financial circumstances. We would be remiss if we were to repeat them here.

Still, the challenge remains that finding an investment platform that offers consulting services for a reasonable price is difficult. For that reason, we recommend considering hybrid platforms like the one offered at RIMAR Capital. These platforms combine the best automated trading with the human touch of in-person advisors who can give you expert advice that speaks to your specific needs. Best of all, we are available for as little as $1000 on your initial investment.

So, if you are looking to harness the power of AI investing with the peace of mind that there is an investment advisor by your side, Rimar is the perfect fit.

Getting Started With Rimar Capital

RIMAR Capital makes artificial intelligence-based investing broadly accessible to everyday investors who don’t fit the profile of a typical hedge fund client. With RIMAR, investors have the choice of several different trading strategies, all of which are backed by some of the industry’s leading experts. What’s more, RIMAR investors don’t need millions in assets to invest, nor are they subject to a battery of fees and prohibitions on when and how they can access their own money. So if you’re ready to pick up returns that are only possible with data-driven mastery of the market, RIMAR Capital is right up your alley.

So, can you make money with automated trading? With Rimar, you can. Contact us today to see how RIMAR Capital can help grow your portfolio’s value with hedge fund-like returns earned using its AI-driven investing strategies and skilled quantitative trading staff.f

Ryan Gordon

Ryan Gordon

Ryan is a qualified chartered accountant of South Africa. Ryan is an avid sportsman who also enjoys reading and spending time with friends and family in his down time. Ryan joined the RIMAR Capital team in 2019 as a business development manager.

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